LCC Pobeda advised to consider replacing its 737MAX order with Russia’s MC-21

LCC Pobeda advised to consider replacing the potential B737MAX order with the purchase of the Russian-made MC-21 airliner (Irkut)

The Russian government is reluctant to approve the purchase of an additional 30 Boeing 737MAX jets by Aeroflot’s low-cost subsidiary Pobeda Airlines proposing, as an alternative, the Russian-designed MC-21 airliner, reports Vedomosti business daily, citing sources close to United Aircraft Corporation (UAC), the parent company of Russia’s major commercial aircraft manufacturer, and Aeroflot.

Last year, state-controlled Pobeda submitted to the governmental commission the relevant application seeking approval for an order of up to 50 Boeing 737MAXs. The airline has since received government agreement to that deal and signed a firm contract for 20 of the newest narrow-bodies, with deliveries set for 2019-2021. But a second order – for an additional 30 of the type, which are needed to expand its fleet beyond 2022 – has been thrown into limbo.

The current government approval procedure, which was created in 2018 as a result of harsh western/Russian relations, requires all state-backed companies to coordinate their import plans for foreign-built aircraft worth more than one billion roubles (US$15.4 million). The cost of 30 B737MAX jets, including heavy discounts, is reckoned to be $2 billion.

The fate of the 30 aircraft order hangs in the balance, as the sub-committee for defence industry, chaired by vice-premier Yury Borisov, has not approved the deal which did not pass the application test to be reviewed by the governmental commission. Instead, Borisov’s sub-committee has advised Pobeda Airlines to consider replacing the potential B737MAX order (all or in part) with the purchase of the Russian-made advanced MC-21 airliner. At the same time, the airline’s Aeroflot parent, which has already placed an order for MC-21s, may have to review its own fleet expansion plans in order to enable its low-cost subsidiary to take early delivery positions of the Russian-made jet.

The serial production launch of the MC-21 has been postponed until 2021 and the aircraft is currently in the middle of certification testing. Whether the government will insist that Pobeda opts for the Russian-made airliners will now depend on the conclusions of the country’s Ministry for Industry and Trade, which has been instructed to produce a report confirming that the Russian aviation industry is capable – or not – to meet the timely delivery of a sufficient number of the aircraft to satisfy the low-cost carrier’s demands.

“We have not yet even passed Pobeda’s purchase approval request for 30 Boeings to the [government] commission for import phase-out,” confirms a spokesman for the vice-premier. “This [matter] is still on our agenda.”

In December 2018, Borisov instructed the Ministry of Industry and Trade and UAC to jointly evaluate the possibilities of covering at least part of this demand for aircraft with MC-21s, he further explains. “No-one is aiming to upset Pobeda’s purchase. The objective is to correlate the investment plans of state-owned companies with the production plans of Russian [aircraft] manufacturers,” he assures.

“At the next meeting we are expecting to discover details of a report from Denis Manturov, head of the Ministry of Industry and Trade, to learn whether the Russian aircraft producer, given its existing backlog, will be able to guarantee deliveries of [sufficient] aircraft to replace the Boeing MAX [order],” he continues. “Based on that report, the government will make the decision about the approval.”

This is the first time that LCC Pobeda has been faced with the possibility of introducing Russian-made aircraft to its fleet. Traditionally, it has been Aeroflot’s task to teach new Russian aircraft how to fly. The Russian national carrier has already taken delivery of 50 Superjet 100 regional jets (SSJ100s) and has also placed an additional order for 100 more SSJ100s (though some of them may be transferred to Rossiya Airlines, its other subsidiary), as well as 50 bigger MC-21 variants.

By contrast, the low-cost subsidiary has always pinned its hopes on tried and tested technology, and is therefore currently operating a unified fleet of 24 Boeing 737-800s, and is counting on adding six more before the start of the upcoming summer season. With those 20 B737MAXs already approved by the officials, by 2021 Pobeda’s fleet is expected to reach 50 units.

In its renewed business strategy, Aeroflot Group has outlined targets for its Pobeda subsidiary to carry between 25 and 30 million passengers by 2023, up from the 7.2 million it served last year. With a fleet of 50 aircraft, the airline could carry some 18 million passengers, industry experts estimate. So, clearly, without the additional aircraft, its targets will be severely compromised.

UAC’s president Yury Slyusar has previously revealed that series production plans for the MC-21 include the assembly of 10 units in its first year and 20 in the second, reaching a maximum output of 72 aircraft a year by its seventh year of production.

Another obvious area of concern is that the low-cost airline business model is based on high intensity operations that require reliable, proven aircraft, not those suffering from ‘childhood’ growing pains. “It’s virtually impossible to achieve dense utilisation with new aircraft,” stresses Boris Rybak, director at Infomost Consulting. Furthermore, it will take years to build a substantial aftermarket support system for the MC-21, including a network of spare parts inventories and maintenance service providers, the expert analyst adds.

In 2017, LCC Pobeda averagely flew its Boeings for 13.2 hours per day. By contrast, UAC has guaranteed to customer Aeroflot a fixed daily minimum MC-21 flight utilisation rate of 5.8 hours in its first year of service and 7.8 and 10.3 hours per day in the next two subsequent years.

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